Question

Governments and not-for-profit organizations are required to prepare budgets. Describe the strengths and weaknesses of budgets.

Answer 1

Strength

1. Budgets are a guide for action.
2. Budgeting for nonprofits is crucial is it allows you to focus on short and long-term strategic goals, which are usually connected to the availability and timing of funding. If your budget is not planned out strategically then your organization may not be able to reach its highest potential.
3. It helps to allocate more resources to the underprivileged or crucial areas.
4. Budgeting also allows you to create financial controls that allow you to set spending limits and will attempt to keep costs in line with revenues. Creating financial controls and spending limits will allow your nonprofit organization to not overspend, and make sure you are making beneficial decisions for your organization.
5. A good budget can provide outside parties granting money or other resources to the organization a financial plan based upon accountability, transparency, and good faith. Outside parties that grant money to nonprofit organizations want to see where their money is going, and that it is going to a good cause. Having a budget established allows you to show where the money you are receiving is going in the organization.
6. Budgeting will also allow nonprofits to maintain focus on the organization’s mission and grow their organization. Having a well thought out budget will allow you to keep your financials up to date and stable, by knowing ahead of time what amount you want to/can spend on certain things. A budget also will allow organizations to grow by using their current resources to the maximum, and hopefully gain more grants along the way.
7. It allows the organizations board to use the budget in its oversight and review. Having an up to date, in-depth budget will increase your chance to getting your board to approve the budget that you are looking to receive for that year. In return allowing you to accomplish all the goals and objectives your organization has set for the year.

Weakness:-

1. Budgets are bureaucratic.
2. If an organisation has clearly identified its Key Volume or Activity Indicators, why go for the time consuming exercise of budgeting? This idea is flawed since you need to consider what the Key Indicators might be and suggest a day-to-day control system based upon them. In such circumstances, cash is an obvious answer and many entrepreneurial forwarders still rely on managing the business with few indicators - usually shipment margin (for each shipment) and the daily bank balance.
3. Budgets are coercive and although control is important, good management should be able to control and motivate a work force without resorting to coercion with all its negative and ''Theory X'' connotations.